MORTGAGE RATES DROP SLIGHTLY

Some local homebuyers face dilemma as average adjusts after recent spike

Average U.S. rates on fixed mortgages fell this week after last week’s surge. The declines could prompt homebuyers to act quickly before rates rise further.

Mortgage giant Freddie Mac said Wednesday that the average on the 30-year loan dropped to 4.29 percent. That’s down from a two-year high of 4.46 percent last week, which was caused by the biggest one-week jump in 26 years.

The average on the 15-year mortgage, a popular refinancing instrument, fell to 3.39 percent, down from 3.50 percent last week — the highest since August 2011.

Rates are adjusting after spiking over expectations that the Federal Reserve will scale back bond purchases later this year if the economy keeps improving, said Keith Gumbinger, vice president of
HSH.com, a Riverdale, N.J.-based mortgage-information website. “We see rates starting to settle back after the panic move,” Gumbinger said.

The bond purchases have kept long-term interest rates down, making mortgages and other consumer loans cheaper. A pullback by the Fed would likely send rates higher.

Despite the gains, mortgages are still low by historical standards. Low mortgage rates have helped fuel a housing recovery that has kept the economy growing modestly.

Still, many first-time buyers could not proceed with a planned purchase and have to restart their search, said Gabe del Rio, chief operating officer of Community HousingWorks in San Diego.

“It makes it more difficult as a buyer because they’re competing with cash investors, especially on the low end” of $250,000 to $325,000, del Rio said. “A lot of folks were knocked out with this increase in rates.”

He said those buyers who can still move forward should lock in the loan rate in case it rises again and sign up for a “floating lock” that drops automatically as escrow-closing time nears.

For move-up buyers, Chad Baker at W.J. Bradley Mortgage Capital in San Diego said about 30 percent of his current clients are opting for adjustable-rate loans rather than paying higher rates for fixed-rate loans. But he said others are downsizing their purchase-price points to counteract higher rates. “This is such a huge shift for everybody,” he said. “People are wary of the interest rate.”

As one example, he said a buyer of a $440,000 home could not proceed when rates jumped from 3.75 percent to 4.25 percent because the monthly payment would have increased nearly $200. That buyer has now decided to shop for a $400,000 property on which the payment would be about $1,824 rather than $2,006 under the earlier scenario.

With prices and rates on the rise, Baker said buyers are moving fast, even during a holiday week, to look, make an offer and lock in rates. “I’m staying in town this weekend because a lot of my buyers are actively looking.”

In early May, the average rate on a 30-year mortgage was 3.35 percent, just above the record low of 3.31 percent.

Buyers are competing for a tight supply of listings, driving up values. U.S. home prices rose 12.2 percent in May from a year earlier, the largest increase since February 2006, said Irvine-based CoreLogic.